ESG engagement with infrastructure managers

Stafford has built strong and ongoing relationships with reputable, well-established underlying fund managers who have demonstrated successful track records and sound investment practices. As of the end of 2021, investments have been made with 26 different infrastructure managers across Europe, North America, and Australasia. These manager relationships, coupled with Stafford’s robust, diligent, and disciplined investment process and strategy, have provided access to high quality underlying assets.

We have formulated a structured process for ESG assessment and reporting of the fund managers. This continually evolving process encapsulates an ESG survey facilitated through the PRI reporting tool and engagement with infrastructure managers on specific topics. One example of our ESG engagement is a webinar on decarbonization in infrastructure which we organized for infrastructure managers in our portfolios in April 2022.

Stafford’s last ESG survey was conducted in 2021 through the updated PRI reporting tool. Fund managers’ responses were assessed and scored, and their scores then ‘translated’ into star ratings.1 The distribution of scores is presented in the figure below.2 A five-star rating reflects the current best practices in the investment management industry while one star suggests the lack
of ESG policies and practises and early stage ESG integration.

The infrastructure managers’ ratings suggest that they have robust ESG policies and have embedded such practices into the investment process and ongoing operations of the underlying portfolio companies. None of the managers has received a rating below 3 stars and several of the infrastructure fund managers with the highest rating can be seen as active pioneers in responsible investing.

[1] The star ratings are assigned based on the percentage scores across managers of all sectors as follows:

Percentage thresholds Number of Stars
0 ≤ 25% 1
> 25 ≤ 40% 2
> 40 ≤ 65% 3
> 65 ≤ 90% 4
> 90 ≤ 100% 5

[2] Stafford used the PRI’s 2021 survey and assessment methodology. Managers are assessed on multiple indicators that are related to their responsible investment policy, strategy, governance, stewardship, climate change and transparency (ISP score). Furthermore, indicators of how advanced they are in the integration of ESG considerations in different stages of their investment process are being incorporated in the so-called INF (module) score. The scores range between 0% to 100%. Details on the PRI’s 2021 assessment methodology can be found here: https://dwtyzx6upklss.cloudfront.net/Uploads/v/g/y/2021_assessmentmethodology_jan_2021_403875.pdf

Energy transition in Stafford’s infrastructure secondaries funds

Despite being a major source of global emissions to date, the energy sector has wide scope to drive down its emissions on the back of technological innovations in the space. We expect the path to net zero over the next decade to involve development in the following sectors and technologies:

• Renewables: solar and wind are vital in reducing emissions from electricity generation, which is the single largest source of C02 emissions. The International Energy Agency (“IEA”) projects that 95% of the growth in global power-generation capacity is projected to be derived from renewables by the end of 2026, with the earth’s renewable electricity capacity rising to 4,800 GW (more than 60% from 2020 levels).  

• Energy efficiency: it is anticipated that energy efficiency solutions that cater to vehicles, buildings, home appliances and industry will experience massive scale-up over the coming years.  

• Electrification: transport (across road, rail, air and sea), heat pumps and furnaces based on clean electricity are projected to assume dominance as fossil fuels lose their prominent position.  

• Bioenergy: this has a wide scope; from cleaner fuels in transport to replacing natural gas with biomethane to facilitate heating and electricity. It can also be utilised to drive clean cooking solutions across the globe in vastly underserved areas. 

• Carbon capture, utilisation and storage: these solutions have the capacity to alleviate emissions from existing energy assets that are facing difficulties in minimising emissions. 

• Hydrogen: there is an opportunity for hydrogen to cover the gaps that clean electricity solutions cannot fill, particularly across components of transportation and heavy industry. 

While governments continue to allocate a considerable portion of their budgets to climate change mitigation policies and decarbonisation, the quantum of this climate financing is not sufficient. Consequently, there is a need and an opportunity for private capital to intervene and drive forward investment to ensure the finance, design, build and operation of these critical assets.